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Diageo Renews Distribution Deals

British distiller Diageo PLC (DEO) has announced its decision to renew its distribution agreements with Minnesota-based broker United Brokerage, Inc. and privately-owned wholesaler of wine and spirits Johnson Brothers.

As per the agreements, Johnson Brothers will continue to remain the exclusive distributor of Diageo brands of wines and spirits in North Dakota and South Dakota. The company will also remain the distributor of Diageo wines in Minnesota. On the other hand, United Brokerage will continue to be the exclusive broker for Diageo Spirits in Minnesota.

In mid-November, Diageo and India’s largest spirits company United Spirits Ltd. also entered into an agreement. Per the agreement, Diageo will acquire a 53.4% stake in United Spirits for 1.285 billion pounds ($2.05 billion) in order to venture into the fast growing alcohol market in India. The deal is expected to close in the first quarter of 2013.

London-based Diageo, whose brands include Johnnie Walker, Smirnoff and Guinness, has been exploring opportunities to expand geographically through acquisitions, within its financial strength. The company has acquired firms with strong indigenous presence like Mey Içki in Turkey, ShuiJingFang in China and Halico in Vietnam in fiscal 2012.

Also in June, Diageo bought Cabin Fever Maple Flavored Whiskey in order to tap the growing markets of flavored whiskey and craft distilling. The renewed agreements with Johnson Brothers and United Brokerage will also strengthen its position in these three states, going ahead.

Diageo currently carries a Zacks #3 Rank (short term Hold rating). We have a Neutral recommendation on the stock.